Multinational Corporations in the 21st Century

GLOBAL GOLIATHS

Multinational Corporations in the 21st Century Economy
April 2021

Multinational corporations are the global goliaths of modern times, accounting for huge portions of world production, employment, investment, trade, and R&D. Some see them as a big problem—monopolizing markets, exploiting workers, dodging taxes, and so on. Others see them as the epitome of modern capitalism, doing cutting-edge R&D, innovating production, and spreading economic benefits for many around the world.

In a new book, Global Goliaths: Multinational Corporations in the 21st Century Economy (Brookings Institution Press, 2021) more than two dozen scholars, across 13 chapters, examine the multinational firm from every angle.

Here’s a snapshot, taken from the book, that shows just how big a role multinationals play in the economy and how that has—and hasn’t—changed in the past few decades.

Multinationals are major players in the U.S. economy

Multinationals’ share of economic activity in 2017, by category
Note: The original figure appears in Global Goliaths, Brookings Institution Press, 2021.
Source: Bureau of Economic Analysis, National Income and Product Accounts; National Science Foundation, Science and Engineering Indicators; Census Bureau Annual Capital Expenditure Survey.

 U.S.- and foreign-headquartered multinational corporations employ about a third of all private sector workers in the U.S. and more than three quarters of all workers in manufacturing.  Because multinationals pay more on average than other employers, they account for almost 40% of all private-sector employee compensation and 90% in manufacturing. Multinationals account for the bulk of industrial R&D in the U.S. and well over half of all capital spending and exports.

U.S. operations of U.S. multinationals have grown at the same pace as the economy

U.S. multinational parent share of U.S. private sector activity
Note: The original figure appears in Global Goliaths, Brookings Institution Press, 2021.
Source: Bureau of Economic Analysis.

In the late 1970s, there were widespread fears that U.S. multinationals were going to take over the U.S. and the world economies. That suspicion persists. But as the chart shows, multinationals’ share of private-sector employment and of capital spending in the United States hasn’t changed much over the past four decades. Multinationals have grown at roughly the same pace as the overall economy. They remain big, but not much bigger than they were, relative to the size of the economy.

A growing share of U.S. multinationals’ workers are overseas

Share of employees of U.S. multinationals who work abroad
Note: The original figure appears in Global Goliaths, Brookings Institution Press, 2021.
Source: Bureau of Economic Analysis.

Of course, some things have changed over the past four decades, notably the increase in hiring overseas by U.S.-headquartered multinational corporations. At the beginning of the 1980s, roughly one in five of their employees were abroad; at last count, it was about a third. Multinationals also did a lot of hiring at home. From 1982 to 2017, the last year for which we have data, they added almost exactly the same number of employees—9.5 million—inside the United States as outside. While some of the overseas hiring was outsourcing to take advantage of cheaper labor, a lot of it was to produce goods and services for foreign markets.

Multinationals that expand overseas tend to expand at home

Changes in the domestic and foreign employment of U.S. multinationals, by number of firms, between 2004 and 2014
Decrease in foreign employmentIncrease in foreign employment
Increase in U.S. employment293704
Decrease in U.S. employment336354
Note: The original figure appears in Global Goliaths, Brookings Institution Press, 2021.
Source: Bureau of Economic Analysis.

Examining firm-level data from the U.S. Bureau of Economic Analysis from 2004 and 2014, we found 1,058 U.S.-based multinationals that increased the size of their foreign workforces between 2004 and 2014. Of those, more than 700 also increased the size of their U.S. workforces. 

U.S. multinationals’ foreign R&D spending increasingly done in non-traditional hubs

Total R&D spending by U.S. multinationals’ foreign affiliates, not adjusted for inflation (millions of US $)
Note: Traditional hubs are the United Kingdom, Germany, France, Canada, and Japan. Non-traditional hubs are all other countries (mainly Israel, China, and India). The original figure appears in Global Goliaths, Brookings Institution Press, 2021.
Source: Bureau of Economic Analysis.

U.S. multinationals used to conduct nearly all their research and development in the United States. What little they did abroad was in Canada, Europe, and Japan. While U.S. multinationals still do the bulk of their R&D at home, over the past two decades, the amount of R&D conducted overseas by U.S. multinationals has grown nearly four-fold—and a growing share of that R&D is being done in “non-traditional hubs,” such as China, India, and Israel.

Percentage of U.S. multinationals’ foreign activity in tax havens

Note: The original figure appears in Global Goliaths, Brookings Institution Press, 2021.
Source: Bureau of Economic Analysis and Dhammika Dharmapala.

A common concern about multinational corporations is that they are particularly good at reducing their taxes, in part by reporting a disproportionate share of their profits in tax havens—countries with low tax rates. At last count, half of all U.S. multinationals had one or more affiliates in a tax haven country. Tax havens accounted for nearly half the foreign profits of U.S. multinationals in 2016, but only about 18% of their value-added outside the U.S., about 14% of their overseas property, plant and equipment, and less than 10% of all their overseas employees.

For more information about Global Goliaths in a printable format, review our summary of the book’s first chapter and principles for policymakers

About the Authors

C. Fritz Foley

C. Fritz Foley

André R. Jakurski Professor and Senior Associate Dean for Strategic Financial Planning, Harvard Business School
James R. Hines Jr.

James R. Hines Jr.

Richard A. Musgrave Collegiate Professor of Economics and the L. Hart Wright Collegiate Professor of Law – University of Michigan
David Wessel

David Wessel

Senior Fellow in Economic Studies and Director of the Hutchins Center on Fiscal and Monetary Policy, Brookings Institution

Acknowledgments:

The authors thank Manuel Alcala Kovalski, Shavanthi Mendis, and Becca Portman for their graphics and design work on this project.